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GBP/USD – Pound Higher After Solid UK Job Numbers, Fed Statement Next

GBP/USD has posted gains in the Wednesday session. In North American trade, the pair is trading at the 1.27 line. On the release front, British employment numbers were mixed. Unemployment rolls expanded by 2.4 thousand, well below the forecast of 6.2 thousand. There was more good news on the wage front, as the Average Earnings Index posted a gain of 2.5% in October, marking the strongest gain since September 2015.  today’s highlight is the Federal Reserve’s policy statement. In the US, core retail sales and retail sales posted weak gains of 0.2% and 0.1% respectively, which fell short of estimates. There was better news on the inflation front, as PPI surprised with a gain of 0.4%, marking a five-month high. Thursday promises to be busy, with the BoE setting its benchmark interest rate. As well, the UK releases Retail Sales. In the US, the markets will get a look at CPI, the Philly Fed Manufacturing Index and unemployment claims.

British inflation levels have moved higher in recent months and this trend was underscored by a strong gain from CPI in November. The key index climbed 1.2%, its highest level since October 2014. Much of the rise in inflation can be attributed to the sharp descent of the British pound, which has lost 15 percent of its value since the Brexit vote in June. This has led to a sharp rise in the cost of imports. With inflation levels moving closer to the BoE’s target of 2.0 percent, many analysts are predicting that the bank could raise interest rates early next year. The BoE is projecting inflation to rise to 2.8 percent in 2018, which could lead to further rate hikes in order to curb inflation.

BoE More Likely to Hike Than Cut Next [1]

UK Inflation Rises 1.2% in November [2]

Will the Fed Deliver a Wake-Up Call to Markets? [3]

All eyes are on the Federal Reserve, as the markets anxiously await the Fed’s rate statement. The markets have priced in a rate hike at 95 percent, most likely a quarter-point increase. This would mark the first hike by the Fed since last December, and anticipation of a hike has translated into strong gains for the greenback.  Even though the rate move has been expected (and priced in) for some time, the markets will be monitoring the statement closely – the currency markets could react based on whether the markets view the Fed’s move as a dovish hike or hawkish hike. What can we expect from the Fed after the hike? The Fed has indicated that it plans to raise rates gradually in 2017. However, this monetary outlook could change, given Trump’s declarations that he will increase government spending and cut taxes, which could lead to higher inflation levels. Once the new administration’s economic policies become clearer, the Fed may send signals to the markets as to its rate plans in early 2017.

GBP/USD Fundamentals

Wednesday (December 14)

Upcoming Key Events

Thursday (December 15)

*All release times are EST

* Key events are in bold

GBP/USD for Wednesday, December 14, 2016

GBP/USD December 14 at 10:00 EST

Open: 1.2660 High: 1.2715 Low: 1.2635 Close: 1.2697

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2351 1.2471 1.2620 1.2778 1.2849 1.2946

Further levels in both directions:

OANDA’s Open Positions Ratio

GBP/USD ratio remains unchanged this week. Currently, long positions have a majority (59%), indicative of trader bias towards GBP/USD continuing to move upwards.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher [7]

Market Analyst at OANDA [8]
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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